Fidelity’s Danoff Bets on Facebook, Zynga
William Danoff, the manager of Fidelity Investment’s largest stock fund, established a toehold in the social-networking industry during the first quarter by acquiring shares of Facebook Inc. and Zynga Inc.
Danoff’s Fidelity Contrafund invested $74 million in Facebook Class B common shares and $82 million in Zynga convertible preferred stock, according to a quarterly report the fund filed yesterday with the U.S. Securities and Exchange Commission. Danoff, 50, has managed the $80 billion Fidelity Contrafund since September 1990.
Fidelity and rivals T. Rowe Price Group Inc. and Capital Group Cos. are snapping up stakes in social-networking companies before they go public, after the mutual-fund industry avoided privately traded stocks for years. Boston-based Fidelity and Baltimore’s T. Rowe Price may recognize an opportunity as a growing percentage of clients access their fund holdings through Facebook, said Geoff Bobroff, a fund consultant in East Greenwich, Rhode Island.
“We are seeing more of these fund companies embrace and adopt social media as something they are providing to their shareholders,” Bobroff said today in an interview. “It’s somewhat logical they would think there is value.”
Vincent Loporchio, a spokesman for Fidelity, said more than 30 of its funds held Facebook shares as of April 30. No fund had more than 0.15 percent of its assets invested in Facebook, according to Loporchio, who declined to comment further.
T. Rowe, American
T. Rowe Price reported in April that 19 of its mutual funds invested at least $191 million during the first quarter in Facebook, the Palo Alto, California-based owner of the world’s most popular social-networking website. American Funds Growth Fund of America, a $168 billion stock fund overseen by Los Angeles-based Capital Group, invested $66.5 million on Feb. 18 in Zynga, the largest maker of games on Facebook, according to an April 29 filing.
Fidelity Contrafund (FCNTX) averaged annual gains of 7 percent over the past 10 years to beat 99 percent of its large-capitalization growth stock peers, according to Chicago-based research firm Morningstar Inc.
Danoff’s fund aims to invest in stocks whose value hasn’t been fully recognized by the public. At the end of last year, it had about 33 percent of net assets in information technology shares, including a $5.3 billion stake in Apple Inc. (AAPL) and $3.8 billion in Google Inc.
The fund acquired 2.97 million Facebook shares during the first quarter for about $25 each, the same price T. Rowe Price reported paying, according to yesterday’s filing. Facebook in January said it had raised $1.5 billion from investors led by Goldman Sachs Group Inc. (GS), placing a $50 billion valuation on the closely held business at the time.
Convertible Preferred Shares
Fidelity Contrafund also bought its Zynga convertible preferred stock on Feb. 18, according to yesterday’s filing. Zynga held talks in February with T. Rowe Price and Fidelity about selling shares at a price that implied the company’s market value was close to $10 billion, two people familiar with the situation said at the time.
Facebook and Zynga last year laid the groundwork for initial public offerings by imposing fees on employees who sell their shares. Zynga may file for an IPO by the end of June, a person familiar with the plans said last week.
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